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Lightweight street fighting

8 October 2015 By Daniel Indiviglio

Hillary Clinton’s proposals for reforming Wall Street land little more than soft punches. The White House hopeful has unveiled a slew of ideas for reining in financial excess. Initiatives like imposing risk fees on big banks and improving hedge fund reporting won’t win many friends in the industry.

The former secretary of state has never had a reputation for being a serious foe to the financial industry. Bernie Sanders, her increasingly popular rival for the Democratic Party’s presidential nomination, on the other hand, does. So she needs some popular-sounding pitches to convince Democratic voters that she can sock it to bankers and traders, too.

Several of the ideas she lobbed into the ring on Thursday would add a couple of bruises to various Wall Street players. Institutions with $50 billion or more in assets would have to pay an extra fee – reminiscent of a suggestion President Barack Obama’s administration made years ago. Extra margin and collateral on repurchase agreements and a tax on high-frequency trading won’t go down well, either. Yet these proposals wouldn’t do much to help or harm markets.

Mostly, though, she merely promises to strengthen existing rules. These include giving regulators more power to break up behemoths, providing the Financial Stability Oversight Council with additional responsibility over shadow banking and nixing the Volcker Rule’s allowance for banks to invest 3 percent of capital in private equity and hedge funds.

There are some obvious appeals to populism, too. She also wants to force banks to claw back bonuses of employees involved in activity that leads to fines – but most have already implemented such rules themselves. And she wants to hold wrongdoers more accountable in general – though offers no substantive ideas for doing so.

This is all a far cry from more aggressive measures others have called for. Sanders, for example, wants to force banks and investment banks apart by reinstating the Glass-Steagall Act. He also plans a broader financial-transactions tax. Such measures would hurt the industry far more than Clinton’s. Hers are more manageable blows that Wall Street would be able to roll with.

 

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